Moved by Baroness Penn That the Bill be now read a second time.
Baroness Penn (Con) My Lords, we will take a little more time over
this Bill. We are here to debate the Energy (Oil and Gas) Profits
Levy Bill, introduced in the House of Commons. It may be helpful to
start with a little of the context behind the Bill. People across
this country are facing rising energy costs and an increase in
their overall cost of living. Of the basket of goods and services
we...Request free trial
Moved by
That the Bill be now read a second time.
(Con)
My Lords, we will take a little more time over this Bill. We are
here to debate the Energy (Oil and Gas) Profits Levy Bill,
introduced in the House of Commons. It may be helpful to start
with a little of the context behind the Bill.
People across this country are facing rising energy costs and an
increase in their overall cost of living. Of the basket of goods
and services we use to measure inflation, a record proportion are
seeing above-average price increases. Indeed, this country is now
experiencing the highest rate of inflation we have seen for 40
years, and this is causing acute distress to the people of this
country.
In May the Government announced a series of measures to help the
British people during this difficult time—a period in which we
have seen prices in oil and gas reach new heights. Oil prices
have nearly doubled since early last year and gas prices have
more than doubled. This is a global phenomenon, driven by factors
out of any single Government’s control and in part by Russia’s
war.
With increased prices at this global level, profits from oil and
gas extraction in the UK have also shot up. These are unexpected,
extraordinary profits, above and beyond what forecasters could
have expected the sector to earn. Because of these extraordinary
profits and to help fund more cost of living support for UK
families, the Government are introducing the energy profits levy.
This temporary levy is a new 25% surcharge on these extraordinary
profits. When oil and gas prices return to historically more
normal levels, it will be phased out. However, we have a
responsibility to help those who, through no fault of their own,
are paying the highest price for the inflation we face.
I now turn to the content of the Bill. As set out in the energy
security strategy, the North Sea will still be a foundation of
our energy security. Indeed, currently around half of our demand
for gas is met through domestic supplies. In meeting net zero by
2050, we may still use a quarter of the gas that we use now. It
is therefore necessary to encourage investment in oil and gas,
encouraging companies to reinvest their profits to support the
economy, jobs, and the UK’s energy security.
It is possible to both tax extraordinary profits fairly, and to
incentivise investment. That is why, within the energy profits
levy, a new super-deduction style relief is being introduced to
encourage firms to invest in oil and gas extraction in the UK.
The Government expect the energy profits levy, with its
investment allowance, to lead to an overall increase in
investment. The new 80% investment allowance means that
businesses will get a 91p tax saving overall for every £1 they
invest, providing them with an additional immediate incentive to
invest. This nearly doubles the tax relief available and means
that the more investment a firm makes, the less tax it will pay.
It means that the allowance can be claimed when the spending on
the investment is actually incurred. This is unlike the allowance
under the existing permanent tax regime for oil and gas
companies, which can be claimed only once income is received from
the field subject to the investment. As noble Lords may know,
this can take several years.
I will provide some clarity on what the investment allowance will
apply to. First, if capital or operating expenditure qualifies
for the supplementary charge allowance, it will qualify for the
energy profits levy allowance. Since the levy is targeted at the
extraordinary profits from oil and gas upstream activities—that
is, the profits that came about due to the global price
increases—it makes sense that any relief for investment must also
be related to oil and gas upstream activities. Secondly, such
spending can be used to decarbonise oil and gas production,
through electrification, for example. Therefore, any capital
expenditure on electrification, as long as it relates to specific
oil-related activities within the ring-fence, will qualify for
the allowance. Examples of electrification expenditure on plants
and machinery are generators, which include wind turbines,
transformers and wiring.
I remind noble Lords that there are other tax and non-tax levers
to support non-oil and gas investments, such as in renewables.
These levers include the super-deduction and the UK’s competitive
R&D tax credit regime. Importantly, returns on these
investments are taxed at 19%, rather than 65%, as for UK oil and
gas profits.
The Government have been listening closely to industry feedback.
Late last month, the former Chancellor met industry stakeholders
in Aberdeen to discuss the levy and make sure it works as the
Government intend. Since then, the Government made a change to
the legislation, which is reflected in the Bill. Tax repayments
that oil and gas companies receive from the petroleum revenue tax
related to losses generated by decommissioning expenditure will
not be taxed under the levy. These repayments are typically taxed
under the permanent tax regime, but, since wider decommissioning
expenditure is also left out of account for the levy, this change
is consistent and fair. I reassure noble Lords that, with this
change, the Government still expect the levy to raise around £5
billion over the next year.
Finally, I turn to how long the levy will be in place. It will
take effect from 26 May this year, and it will be phased out when
oil and gas prices return to historically more normal levels. The
sunset clause in the Bill ensures that the levy is not here to
stay. Very few taxes have expiry dates set in law, so this
provision demonstrates the Government’s commitment to keeping the
levy temporary, and it gives oil and gas companies further
reassurance, as they seek to plan their investments.
The Bill, and the levy it legislates for, should be seen against
the backdrop of the reality that we find ourselves in: people are
in hardship across the country, while businesses in the UK oil
and gas sector have made profits surpassing their expectations,
reflecting the extraordinary global context. Through the Bill,
the levy will raise around £5 billion of revenue over the next
year. This is not about maximising revenue for the Exchequer but
about targeted objectives: to help with significant targeted
support for millions of the most vulnerable, and to encourage the
oil and gas sector to reinvest its profits to support the
economy, jobs and the UK’s energy security. For these reasons, I
commend the Bill to the House.
7.54pm
(Lab)
My Lords, this legislation, which is being rushed through
Parliament, has the ostensible purpose of addressing the crisis
of fuel poverty that is affecting an increasing number of
households. The crisis is a consequence of the escalation of fuel
prices in the international energy markets. Temporary measures
are to be taken to tax windfall profits that are accruing to the
domestic energy companies, which are the providers of oil and
gas. The Labour Party has called for such measures, and the
present legislation should be seen as a welcome response by the
Government. Therefore, it might seem surly and ungracious to call
this legislation into question, but that is what I intend to
do.
Although the Explanatory Notes suggest that the measures are
intended to help fund more cost of living support for UK
families, they are not directly connected to this purpose. The
additional energy taxes or levies have not been hypothecated in
this way; that is to say that they have not been pledged in a
legally binding manner to serve the purpose of alleviating fuel
poverty. The levies will serve to bolster the tax revenues of the
Government, which sustain a multitude of purposes. Nevertheless,
the Government can expect to derive some significant political
capital by imposing the levies.
The current high prices that we are paying for gas and petrol
have been determined in the international markets. It does not
necessarily follow that our domestic energy suppliers are bound
to profit from these circumstances or that their profits will
have increased automatically. We are led to believe that their
profits have increased; this is true for the US but the figures
to prove that it is true for UK companies operating on the UK
continental shelf are not yet available. We know that, in 2021,
their total profits across supply and generation fell by £133
million, or 3.4%, on the previous year. However, profits
increased in the domestic supply market, providing an average
profit margin of 4.3%, I believe.
The truth is that the UK’s oil and gas revenues are now a
fraction of what they were in the peak period in the mid-1980s,
when North Sea oil and gas were plentiful. The supplies are
virtually exhausted now, which means that only a small proportion
of what we consume comes from domestic sources. Therefore, one
should not expect the levies on windfall profits to generate a
large amount of additional revenue. The aspersion that the
companies have been adding a substantial mark-up in selling what
they have been purchasing on international markets is not
substantiated. Companies operating in the North Sea are subject
to a 30% corporation tax levied on their profits and a
supplementary charge levied at the rate of 10%, whereas the
standard rate of corporation tax is currently 19%. The energy
profits levy, which will take effect retrospectively from 16
May—which is when we were notified of this legislation—will
represent a 25% tax on oil and gas profits, bringing the total
tax burden on profits to 65%.
In the financial year from 2021, the total receipts from profits
on oil and gas from companies operating in the North Sea were
£3.1 billion. The Treasury estimated that the additional revenue
from the oil and gas levies will be £5 billion in the first 12
months—a highly speculative figure, which may represent an
exaggeration. Moreover, as we have heard, the additional revenues
are not expected to persist, and the legislation includes a
sunset clause that will remove the levy after 31 December 2025,
when it is expected that the profits will have declined.
The proposal to impose the levies has been met with the criticism
that they are bound to deter investment by energy providers. The
Government have met these criticisms by providing some very
substantial investment allowances. A new 80% investment allowance
will be available to companies in respect of qualifying
expenditures. Such expenditures are closely circumscribed to
prevent the allowance being used in financial acquisitions, for
example, or covering decommissioning costs. It appears that the
Government envisage further investment in oil and gas
extraction.
However, the allowance will not be available for investment in
alternative sources of energy, and here lies the main criticism
of the legislation. To encourage investment in fossil fuels flies
in the face of the commitments to staunch emissions of carbon
dioxide. One can be fearful that these provisions represent the
beginning of an attempt to roll back the measures to attain
net-zero emissions, to which the Government are seemingly
committed.
In any case, one must question the rationale behind investments
in oil and gas. Given that the prices of oil and gas are
determined in the international markets, and that domestic UK
production is now a negligible fraction of global production,
there can be no expectation that expanded domestic production
could impact significantly on prices.
An economic rationale for an expanded domestic production might
be to alleviate the impact on our balance of payments of the cost
of our energy imports. Given the magnitude of our balance of
payments deficit on the current account in respect of goods and
materials, this alleviation would be small in proportional
terms.
The truth of the matter is that the UK has failed to take the
appropriate steps over the past decade to secure its supplies of
energy. Now is a time for urgent action to embark on a viable
long-term strategy for the provision of energy. Instead, the
current exigencies are encouraging the Conservative Government to
attempt to suck from the North Sea what little energy there
remains under the waves, and to encourage further attempts at
deriving oil and gas by a process of fracturing rocks, which has
already been strongly resisted by the citizens of the UK.
8.00pm
(LD)
My Lords, there is just one question that I would like to ask the
Minister before I begin. There has been some rumour in the press
that this legislation would be passed but not implemented because
of the change in the leadership. I hope that is a misreading of
comments that have been made, and perhaps it applies to a
potential tax on the energy generators rather than on the oil and
gas companies involved. I thought that this might be an
opportunity for the Minister to clarify the issue.
My party called for a windfall tax on the surging profits flowing
to the oil and gas companies because of soaring prices back on 24
October 2021, well before Labour made up its mind to support such
a tax and seven months before the Government suddenly effected
their U-turn. Because the profit surge was well under way last
October, we are calling for the levy to be backdated to that date
in October. I know that we have no possibility of amending this
legislation, but I hope that this might cause the Minister to
think again. Had the levy been put in place back then, many
families would have had significant help with their struggles
over the winter.
The Liberal Democrats would also have structured the levy
differently, to ensure that the 25% surcharge applied to the
excess global profits of oil and gas producers headquartered in
the UK, rather than just profits from their domestic activity.
Those two changes combined would have yielded the Government some
£11 billion, rather than their expected £5 billion. It is a real
missed opportunity at a time when ordinary people need so much
help. For those who doubt that there are excess profits flowing
to oil and gas companies, I suggest that they need only look at
the share buybacks announced by the major oil and gas
players—more than $8 billion a year announced in share buybacks
by Shell, and something like $6 billion announced by BP, with
both companies hoping that their shareholders will permit even
larger share buybacks.
The Government have also missed the opportunity to use this levy
to promote green investment. The super-deduction of 80% in effect
doubles the tax relief for oil and gas companies increasing
investment in oil and gas extraction in the UK. For every £1
invested, they get a tax savings of 91p. I accept that gas has a
role to play in the transition to net zero, but it is a temporary
role as we switch to green hydrogen. I also accept that the
Russian war in Ukraine has raised issues of energy security, so
that some extension of the life of existing UK oil and gas fields
may be required. But we have no practical plan from the
Government to get to net zero or to deal with the issues of
energy supply while dealing with affordability. All we have is a
vague strategy which is leaving consumers, businesses and
investors in a state of confusion and uncertainty. In that
situation of overarching uncertainty for any kind of investment,
this reward for oil and gas extraction risks tilting investment
back towards fossil fuels and away from green energy. It really
is shambolic. At the very least, investment in renewables should
have qualified for the super-deduction. I would argue that, given
the need we have to immediately tackle soaring energy bills,
investment in energy efficiency and retrofitting homes and
commercial properties—the quickest way to bring down bills—should
have been included.
None of us knows who will lead the Government in the autumn, and
none of us knows how the money raised from this levy will be
spent, but at least we can get some recognition today that it
ought to be on those who are suffering the most from soaring
energy bills and the cost of living crisis. I hope that we can
hear that reassurance from the Minister.
8.05pm
(Con)
My Lords, I hope that the rumour to which the noble Baroness,
Lady Kramer, refers is correct. I will argue the case as to why
this should not be implemented if passed by both Houses.
We all support energy transition, and we are all committed to
working towards net zero. The fundamental questions are these.
What is the appropriate timeline and what is the policy framework
we should be pursuing? The answer on policy underpinning has been
unchanged since we first developed oil and gas reserves in the
North Sea. Security of supply is best delivered through diversity
of supply. At the present time, we vitally need to produce gas
within a regime of strict environmental standards—gas coupled to
policies to promote energy efficiency, as the noble Baroness
said, supporting the vital issue of creating effective baseload
energy while intermittent renewables and a new generation of
nuclear plants are developed. That must underpin energy policy in
the UK.
After 20 years and nearly $5 trillion of investment, the world
has only 15 million barrels of oil equivalent of wind and solar,
against the 237 million barrels of oil equivalent per day which
we require. So it will take many decades more to complete the
transition. In the meantime, we must encourage investment in gas
production in the UK, while insisting on rigorous environmental
controls surrounding its production. To have the capacity to
invest, the industry must be profitable and be fiscally
encouraged to invest its profits in future production.
The noble Viscount, , is correct that oil and gas
companies operate in a highly competitive global market for the
marginal investment dollar. Political uncertainty and populist
short-term fiscal measures turn those investment dollars away to
more stable provinces. Rather than a short-term measure—despite
the good words of my noble friend the Minister regarding the
sunset clause—there is no political chance whatever that this
levy will not be in place until at least 31 December 2025, which
is currently shoehorned into the Bill as a sunset clause. There
is no conceivable way that an outgoing Government, in the run-up
to a general election, will phase it out, whatever the price of
gas, nor a new Government court political unpopularity by taking
immediate action.
So what has the EPL done? By announcing the energy profits levy
on UK oil and gas production, it almost halved the post-tax
profits of the industry by increasing the marginal tax rate from
40% to 65% effective immediately, which Lambert Energy Advisory
estimates could cost companies up to $30 billion in taxes over
the next three and a half years, to the end of 2025. This was
despite repeated protestations over the last three months from
the Prime Minister that
“The disadvantage with those sorts of taxes is that they deter
investment in the very things that they need to be investing in
... I don’t think they’re the right way forward”,
and the Business and Energy Minister, , saying:
“I don’t believe in windfall taxes because what you’re taxing is
investment in jobs, wealth creation, and investment”.
As Philip Lambert, who has been one of the leading advisers to
successive Governments around the world, has rightly summarised
through the publications of Lambert Energy Advisory:
“In the end these reservations counted for little when faced with
the political pressure from opposition political parties and the
general public to be seen to do something about the current
energy and cost of living crisis, even though the action taken
will make matters worse.”
Again, as the noble Viscount, , pointed out, this is not
hypothecated. At its core, the issue is that there has been
systematic underinvestment over the last decade in the primary
lifeblood of the global energy, gas, leading to a squeeze on
supply versus ever-rising demand, combined with an inability of
policymakers to recognise or act on this fact. The Russian
invasion of Ukraine has recently magnified this crisis but did
not create it, and in fact made it harder for policymakers to
focus on the root problem.
The only solution to high prices and energy insecurity is more
investment to create new supplies from a diverse range of
sources. Oil and gas still account for more than 10 times the
global energy supplied by wind and solar, and without continuous
investment this will immediately start depleting rapidly. Even
with the intermittent wind and solar industries continuing to
grow at the current exponential rates, it would still take about
two decades for wind and solar annual generation additions to
match current oil and gas annual depletion with zero investment,
let alone start meeting growing global demand for energy.
Furthermore, the current rate of wind and solar growth may slow,
given the rising costs of import materials and supply chain
bottlenecks. Therefore, an increase in oil and gas investment is
essential to meet the world’s energy needs and alleviate the
current energy cost crisis even as other low-carbon initiatives
are welcome and progressed.
While the UK continental shelf is a modest contributor to the
global energy mix, accounting for about 1% of both the world’s
oil and gas production, and UK energy prices are as much
dependent on the USA’s energy system as they are on the UK North
Sea, it is still a bellwether for the state of the wider industry
and matters at the margin. Hence, the EPL is important both as a
signal of wider trends and for its impact matters in its own
right. In that regard, despite the UK Government’s rhetoric
couching it as an incentive for investment, make no mistake that
the EPL is bad for investment in the UKCS. It confirms the UK’s
existing reputation for fiscal instability and political
opportunism with regards to oil and gas, having already
drastically changed the UKCS tax regime rates multiple times in
just the last decade. Its policymakers are introducing an
additional layer of tax which will come on top of the natural
windfall that the sector would pay anyway due to high prices. The
EPL is designed to disallow offsetting of historic tax losses
only two years after the industry endured severe losses from the
crash in commodity prices in 2020 from the Covid crisis, when the
UK Government provided the industry with no tax support.
I am sure that the noble Baroness, Lady Bennett, will argue
strongly against what I have just said, but this contrasts with
Norway, a country I am sure she praises—she shakes her head, but
it does at least claim to take a very strong line on
environmental policies and in that context, I think it is worthy
of comparison. Across the median line, the basic marginal tax
rate and principles that have underpinned its approach to
investment have remained unchanged for the last two decades.
Recent structural changes were carefully signalled in advance and
designed to allow a smooth transition, and its Parliament did not
hesitate to support the sector in 2020, unlike here. They were
confident that the support would be paid back in the long term
through greater profitability from a healthy industry. They
invested some $10 billion of support. Consequently, despite much
higher marginal tax rates than in the UK, Norway retains greater
investor confidence than the UK and is already attracting heavy
investment in new production with a much healthier independent
E&P sector, which is really relevant to gas production in the
North Sea. Whatever the details of the law which we are
considering today, the mere fact of the EPL’s introduction will
certainly impair foreign direct investment in the UKCS because of
its reputational impact. It was already very difficult to attract
long-term investment into the UK oil and gas industry at a time
when three out of the four major party leaders in our county have
either called for, or signalled they are open to, an end to new
oil and gas investment.
The oil and gas sector globally, but especially in the North Sea,
has limited access to new incremental equity and debt capital.
Indeed, it is a net repayer of equity and debt capital, so almost
all its capital expenditure is funded out of operating cashflows.
Hence, the UK Government removing $30 billion from the capital
pool in the next few years via the EPL will impair the sector’s
ability to spend and to pay out to equity investors, especially
for those who are leveraged and still have to meet their debt
obligations. There will likely be reluctance, even among those
who have the choice, to divert cashflows from other geographies
to the UK to make up for this. While the construction of the EPL
is in theory designed to encourage more investment, it is
questionable whether it will do so even for those who are already
committed to the UKCS.
Regrettably, I stand to say this is a bad tax at the wrong time.
It will have a negative impact on investment at a critical
juncture in our early steps towards a net-zero economy and it
should be scrapped.
8.15pm
(Lab)
My Lords, it is good to see the Minister advancing and defending
a policy that the Government so vehemently rejected not so long
ago. The Bill is not what it seems to be. A large chunk of the £5
billion that may be raised is to be handed back to the oil and
gas companies through the 80% investment allowance. The
Explanatory Notes do not say how much that would be; there is no
information. Neither is there any requirement that the gas and
oil produced with that investment should be used in the UK—after
all, we are short of energy. Companies can claim the investment
allowance on assets that they do not legally own. In other words,
they can claim it on leased assets. I can tell noble Lords,
having worked in the oil industry as an accountant, that
accountants would be very busy concocting transactions so they
can claim this £91 in every £100 for the allowance.
The Government’s treatment of renewables is absolutely
lamentable. At the moment, for every £100 of investment,
renewables receive £25 in various reliefs. In 2023, that goes
down to £4.50. Of course, if the Government think that this 80%
investment allowance is so good that it will stimulate additional
investment, why not extend it to all the other sectors too and
see whether it achieves that? Of course, it will not.
The Government are handing billions to the oil industry. The real
reason for that is that it has given vast donations to the
Conservative Party: some £1.5 million since 2019, and this is its
pay-off.
The 25% levy, or the windfall tax, is actually low. The companies
are collecting extraordinary profits without making extraordinary
effort or taking additional risks. In my writing, long before the
Government or any other political party came around to it, I
called for a 90% windfall tax—Greenpeace talked about 70%—which
would have generated a lot of money for insulating homes and
putting solar panels on every single public building. The 25%
windfall tax is simply a gesture by the Government to manage
public opinion. It will not really have much impact on oil and
gas companies, which have highly diversified income streams. Only
about 5% of BP’s consolidated production is based in the UK. The
25% levy will account for less than 2% of its earnings before
interest, taxes, depreciation and amortization—in accounting
circles, the acronym for that is EBITDA, in case anybody is
wondering about that particular expression. This small 2% charge
will hardly worry any major oil producer, especially BP. In the
first quarter it had profits of $6.2 billion, and it handed over
$4 billion to shareholders in the last 12 months. BP reported an
average refinery profit margin of $18.90 per barrel during the
first quarter of 2022. That is nearly three times the $6.70 per
barrel margin reported in 2020. This windfall tax will hardly
make a dent in that kind of profiteering. BP has now paid tax on
North Sea operations for the first time in the last six years
because the Government have showered that industry with all kinds
of relief, and that is the result. It has now paid $127 million
in tax on profits of $12.8 billion. It will hardly be affected by
this levy that the Government are telling us about.
Only about 3% of the consolidated production of Shell is in the
UK. Its share of the windfall tax, in terms of impact on EBITDA,
is barely 1.5%—hardly worth worrying about. The Government are
just making a gesture. Shell tripled its profits to $9.1 billion
in the first quarter of 2022 and has just completed an $8.5
billion share buyback programme. It is awash with cash; its
refining profit margin rose in the second quarter of this year to
$28 per barrel, from $10.23 a barrel in the first quarter and
$4.17 a year earlier. That is seven times more profit from
refining, and the Government are hardly making any dent in it.
Shell has paid no corporation tax on its oil and gas production
in the North Sea for the fourth consecutive year.
In the broader context, the yield from the windfall tax is too
low, and a vast amount of it is being handed back to the same
industry. No questions are being asked about how these oil and
gas companies have managed to dodge taxes. There is no
investigation into the transfer pricing and profit-shifting
techniques used by these companies to dodge UK taxes or any
review of the government policies permitting them. In 2019, the
UK collected $1.72 in tax per oil barrel; in contrast, Norway
collected $21.35 per barrel. Yet the UK Government are mounting
no investigation into why they are giving away vast revenues.
Oil and gas companies are also rigging the market. They not only
produce but buy, sell and speculate on gas and oil that they have
produced themselves. BP alone employs more than 3,000 traders to
do exactly that; this speculation has generated $2.3 billion of
profit. There is absolutely no transparency about it or any
disclosure of the accounts. No accounting standard or government
department demands it, so these companies are buying and selling
products which they produce, speculating and pushing up the
price. That should really be looked at.
There is profiteering at all stages of the entire circuit of
producing and selling oil, gas, petrol and electricity, but no
windfall tax on all stages. Between June 2021 and June 2022, the
refiners’ margins on petrol increased by 366% and margins on
diesel increased by 648%. Why is there no windfall tax on the
refiners?
On 8 July, the Competition and Markets Authority said:
“Increase in ‘refining spread’ added 24p a litre to fuel over the
last year”
and:
“The ‘refining spread’ tripled in the last year, growing from 10p
to nearly 35p per litre.”
That is a massive amount of profiteering, yet there are
absolutely no checks on it. The RAC and other motoring
organisations tell us that major retailers are incredibly slow to
pass on falling wholesale costs, yet very quick to pass on rising
ones. Again, the Government have done nothing about this,
thinking that these organisations will somehow regulate
themselves. They have got used to picking our pockets and are
carrying on doing so, with the Government’s help. There is
profiteering by banks, supermarkets, electricity generators,
water and other companies; why are there no windfall taxes on
them but a tax on oil and gas companies operating from the North
Sea? I hope the Minister can answer these questions.
The Minister will also have noticed that Spain is now levying a
windfall tax on banks and utilities to provide free train travel
to help people and alleviate pressure on energy demand and petrol
prices. Why do the Government not do the same?
8.24pm
(GP)
My Lords, it is a great pleasure to follow the very powerful
speech of the noble Lord, . I apologise to the Minister
for missing the first few seconds of her speech; we had a very
long group in Grand Committee on the Procurement Bill.
I must commend the noble Lord, , on bravely—in the “Yes
Minister” sense—highlighting the importance of stability in
government policy, using the example of Norway, which is known
for such stability in its policy-making. It has a modern,
functional constitution and a Parliament that reflects the view
of the people, elected by proportional representation, producing
what is generally agreed to be a fine quality of governance. I
point out that, whatever the final belated delivery of this very
modest—as the noble Lord, , just highlighted—tax on the
oil and gas industry, the renewables sector has seen instability
in policy. The sudden pulling out of the rug on the feed-in
tariff saw many small, independent businesses—solar installers
and small-scale hydro—see their businesses disappear overnight
because of government policies and the installation sector was
encouraged to build up several times by government policies
before having the rug pulled out from under it. So I commend the
noble Lord, , on being terribly brave in
criticising his own Government.
Now we find ourselves in the strange situation that a Government
on their way out are finally seeking to tax oil and gas companies
that have made huge profits, as the noble Lord, , just outlined—not through
innovation, positive activity or investment, but because of a
perturbation in the global energy markets and, as the noble
Baroness, Lady Kramer, highlighted, President Putin’s invasion of
Ukraine. These are profits made on damaging products that impose
heavy costs on us all. We have been experiencing those costs
today: of course today’s temperature is just weather, but we are
seeing a great deal of notable, extraordinary weather on this
overheated planet, for which the oil and gas sectors bear the
greatest responsibility.
This tax applies only from 26 May, which means the bumper profits
enjoyed by companies such as BP and Shell in the first quarter of
2022 are not covered. The Government say that this is a temporary
tax; it was brought in belatedly, long after the Green Party, and
then others, called for its introduction. They say it will be
dropped when prices “normalise”, whatever that means, or, by the
terms of the Bill, on 31 December 2025 at the latest.
Of course, it could also be by government fiat. I would be
interested to know if the Minister can tell me the position of
the field of Conservative leadership candidates on this dirty
profits tax. I had not heard the rumours that the noble Baroness,
Lady Kramer, has, but I have not heard any affirmative statements
either. Do they intend to maintain the Government’s current
policy? We have heard very little about any environmental issues
in the leadership debate—astonishingly, given that our nation
remains the chair of COP and in the recent integrated defence
review identified the climate emergency as a major threat.
The i reported, and I have no reason to disbelieve, that not a
single Conservative leadership candidate attended the emergency
briefing led by the UK’s Chief Scientific Adviser Sir , which outlined the
catastrophic impacts of a warmer planet—an updated version of the
one that converted , at least rhetorically, to
the cause in 2020. I am sure the party is aware of the fate of
the climate change-denying Government of Scott Morrison in
Australia—which has so many similarities to our current one—and
must be concerned about how the public will see the huge black
hole at the centre of the Conservative leadership debate.
With this tax, as with so many of the Government’s so-called
green measures, what is on the wrapper does not reflect what is
in the tin. There is nothing extraordinary about the tax rate
being temporarily introduced; it simply reflects, as the
Institute for Fiscal Studies notes, a return to levels
“broadly typical of the historical rates of North Sea taxation
since the 1970s”.
Perhaps that is some of the stability the noble Lord, , was looking for. That is
without counting the super-deduction so many noble Lords have
already covered, which means that investing £100 in the North Sea
for new production will cost companies only about £8.75. The
remaining cost is met by the Government. That is the money of so
many hard-pressed citizens, struggling with the cost of living
crisis, going into new oil and gas. Dan Neidle of Tax Policy
Associates, commenting on this, said that applying this for three
years simply did not square with long-term investment planning.
He says,
“Short term allowances don't incentivise investment, they just
give money away.”
That is that £91 being given away by the Government to the oil
companies.
Many commentators have noted that investments can take decades to
produce results, and indeed are expected to. That immediately
demolishes any claim about this gas being simply a bridging fuel
towards renewables. Instead, what that public money would be
doing is adding to the carbon bubble, and I note the latest
figures from the respected analytical group Carbon Tracker, which
show that global stock markets are currently financing companies
sitting on three times more coal, oil and gas reserves than can
be burned without beating the 1.5 degree Paris climate target. In
its latest report, it also revealed that the embedded emissions
in the fossil-fuel reserves of companies listed on the global
stock exchange has grown by nearly 40% in the last decade,
despite the growing urgency of the climate risk.
Given that a third or more of the money raised goes straight back
to oil and gas producers, that suggests that it is the largest
companies, the giant multinational companies that can most afford
to pay, which are most likely to profit from this provision,
while smaller firms may not be in a position to do so.
I am sure I can predict with some degree of certainty, since
these issues have been much canvassed, what the Government are
likely to say in response—“energy security”—and they will
probably know what I am going to say, at least in a general
context. I think it is worth highlighting that we are part of a
global energy market. This is not gas that is going to go into
our market; it is gas that goes into the global market. I have
seen in one or two places the Government trying to say, “Well,
you know, supply and demand—more supply means the price goes
down.” According to 2017 figures, the UK has 0.106% of the
world’s natural gas reserves, so the claim that this will make
any difference to the global price does not add up. Coming back
to the point raised by the noble Lord, , there is also the fact that
we get we get most of our external gas from Norway and that has a
carbon footprint significantly lower than that in the UK.
I come back to the points raised by the noble Lord, , about the economic context. I
think one useful way of framing this is by a recent report the
Common Wealth think tank, which noted that workers in the UK
would be paid £2,100 a year more on average if wages had grown in
the same way as company dividends in the past two decades, in our
rentier-dominated economy. The Common Wealth think tank joined in
a May Day statement with other groups—including the Women’s
Budget Group, reflecting the gendered nature of inequality in the
UK—that pointed out that this current cost of living crisis,
which is often dated to the start of the Russian invasion of
Ukraine, is a long-term trend. The economy has been arranged for
the benefit of the few, at the cost of the many—not
coincidentally in a political system that is funded largely by
the same few. We get the politics they pay for.
I cannot but conclude that this belated, limited, inadequate
gesture reflects the political place of the oil and gas companies
in our current political system. It is deeply disappointing that
the renewables sector is not getting similar incentives—I will
not go into detail as the noble Lord, has already covered this very
well.
I come finally to one point about how much the failure to head
towards renewables is costing people in this cost of living
crisis. We have seen recently the new contracts for difference
let, and that is expected to cover about 12 gigawatts of power
for the coming year. Had that been done 12 months ago, it would
have saved average household energy bills about £100 a year. That
is what delays a costing moment by moment, day by day. The
renewables sector had ready, and was prepared to go ahead with,
17.4 gigawatts of energy, but the Government did not offer all
the contracts that could have been offered. That is going to cost
consumers on their bills every day.
This is a belated, inadequate measure, and every government
failure every day—this focus towards oil and gas—is costing
people in their bills, as well as costing us the planet. We are
not doing the long-term, steady renewables policy that could
deliver the future we all need.
8.36pm
(LD)
My Lords, I congratulate the noble Lord, , on his forensic analysis of
the market. It was quite astounding. He is an accountant, so he
has to be right—we know that, in the western world. I thank him
for that, and I look forward to the now extended half-an-hour
reply from the Minister to his questions.
I have to say that one of the things that I like about the
Bill—let us start off with the positive things—is that to some
degree it is fiscally responsible. The Government are spending
something a mere £37 billion—the Minister will correct me—on
trying to solve the crisis in price increases, and here we have a
Bill that, while it is not hypothecated, puts some £5 billion
estimated back into the Treasury to pay for that. One of the
reasons I welcome the Bill is because now, whenever I see a
Conservative Party letterhead and that tree that is its logo, I
think of it as the magic money tree. That has gone from rhetoric
aimed at the Opposition Benches to the Government Benches because
of the first round of the Tory leadership competition, where we
had absolutely zero fiscal responsibility of any sort whatever.
Maybe these are the last vestiges. Maybe the noble Lord, , will be rewarded by the fact
that, if one of those now remaining eight candidates —or six or
whatever it is—get in, this will probably disappear due to low
tax and high spend. It will be interesting to see.
My noble friend Lady Kramer is absolutely right. At the end of
the day, the core of this is the fact that households are having
to pay huge amounts of extra money for their energy, and it is a
real challenge to them. I quoted this figure in Grand Committee
yesterday in a debate on an SI. Looking at myself, my standing
order to Octopus Energy at the beginning of the year was £212 a
month; this month, I paid £355. That is a huge increase, and one
which I am fortunate enough to be able to afford—although even I
blinked. However, to many of the households in this country, not
least the 3.5 million households that were in fuel poverty before
these prices even rose at all, it will be a huge challenge.
One of the sad things about that £37 billion that is going into
trying to solve this crisis in the short term is that it is money
just to stand still. There is no investment in there in energy
efficiency or putting our housing stock right—all those
challenges that we need to meet. It is just money that is coming
through the Treasury and, importantly, out to households again.
However, if these high energy prices continue, that will not have
solved that problem one little bit.
When the noble Baroness, Lady Bennett, mentioned Scott Morrison,
it was like a voice from the past. I thought I had forgotten that
name forever, and I wish that I had. I hope that Anthony
Albanese, who has now taken over, will now very much change the
southern hemisphere’s look at climate change.
I come back to Norway, which seems to have dominated this debate
to a degree. The great thing about Norway, of course, is that it
has a sovereign wealth fund, one of the largest in the globe,
which is invested internationally and well, and is a great asset,
whereas we in the United Kingdom have no sovereign wealth fund
whatever, despite having depleted those resources in the North
Sea. I am not pointing the finger at anybody or at any particular
party, but one of the tragedies is that we have not used that
ability to invest in our future.
No doubt this is a tilt back to the carbon economy rather than
the clean economy—one of energy efficiency led by renewables. I
would like to ask the Minister a question. I read through what
was allowed or not for investment—the noble Baroness will excuse
me if I did not read it sufficiently well—and I wanted to
understand whether investment in new fields in the North Sea was
allowed. Would it include that, depending on how long this levy
lasts for, or is it just around—I say “just” carefully—greater
extraction from existing resources?
I would also like to ask the same question that the noble Lord,
, did. Although I understand
that this £5 billion is a net figure after the investment
incentive, I would be very interested indeed to understand
whether that is the case or what the Government are forecasting
with regard to the take-up of that investment.
On a minor point—I do not want to take the House’s time up on it
hugely—it seemed to me when I read through the Bill that it took
up a huge amount of space to make sure that nothing recycled was
used. I can sort of understand all that, but it does not say a
lot about the circular economy to a degree. I would hugely prefer
recycling rather than new equipment, but maybe that is a small
thing.
This industry is moving towards carbon capture and storage, which
is perhaps more beneficial—I am slightly sceptical about CCS, but
the Climate Change Committee tells us that it is a key part of
meeting net zero. Is investment in carbon capture and storage
included in this?
Contracts for difference were mentioned by someone—was it the
noble Lord, ? Sorry, it was the noble
Baroness, Lady Bennett. Sorry I mixed the two up—their views and
speeches are so similar. Where we have contracts for difference,
this problem of excess profits is solved. The Treasury, through
the contracts company, is doing very well at the moment, because
the strike price on contracts for difference is well below the
current wholesale or reference price for electricity. If we have
those sorts of mechanisms—introduced by a Liberal Democrat
Secretary of State for Energy and Climate Change—we solve these
things automatically. I think there are ideas to apply that to
the traditional power sector as well, which would indeed be
interesting.
As my noble friend said, we see ourselves—no doubt, along with
others in the House—as progenitors of this legislation, to which
the Government were very late to the table, but we are at the
crossroads, a fork, in energy policy. There are the siren sounds
of, “Hang on a minute. Let’s take the route back to fossil fuels
to put this right. Guys, it’s only temporary; we’ll invest in new
fields, but we will still be in transition.” There is a real
danger here. We have seen that in the leadership contest for the
government party at the other end of the Corridor, during which
this issue has not been seen as sufficiently important by
candidates and their campaigns. We really are at a fork.
Lastly, I put a challenge to the Minister. Just to make sure I am
wrong, can she confirm that the Government will not approve the
coal mine in Cumbria?
8.45pm
(Lab)
My Lords, I am grateful to the noble Baroness, Lady Penn, for
introducing this important Bill. It is legislation that we could
and should have debated many months ago, had the then Chancellor,
the current Chancellor and the rest of the Cabinet not railed
against Labour’s longstanding proposal for a windfall tax on oil
and gas profits.
The Labour Front Bench facilitated three votes on this issue in
another place, with Conservative MPs voting against the proposal
on each occasion. Ministers told us that a windfall tax would be
unfair. It is not. The revenue raised will fund vital support for
households across the country in the face of spiralling bills.
They told us that the energy companies were against it. They were
not. Energy bosses were clear that their increased profits had
not been expected and would not be missed. They told us that it
would stifle investment. It will not. Firms said that plans were
already in place and were unlikely to be scaled back in the face
of a higher tax burden. When the inevitable U-turn came on 26
May, with the announcement of the creatively named “temporary,
targeted, energy profits levy”, we welcomed it—subject to seeing
the detail.
The Bill before us creates the legislative underpinning for the
levy. We will not oppose it, but that does not mean we fully
endorse the Government’s approach. The levy will be charged only
from the date of the policy announcement, rather than being
backdated to a point where both wholesale prices and company
profits began to rise above what would be considered normal.
The Government’s preference was not to apply a tax measure
retrospectively, but can the Minister confirm whether the
Treasury has calculated how much could have been derived from a
levy between January and May 2022? Can she also confirm that the
Treasury commencing the levy at an earlier date was indeed an
option? Although it is not a fiscal measure, your Lordships will
remember that in March, during consideration of the economic
crime Bill, the Government introduced rules relating to entities
disposed of prior to the Bill’s introduction. This levy can be
phased out if and when prices return to normal; otherwise, the
Bill contains a sunset of the end of 2025.
In another place, much debate focused on what the Government mean
when they talk of normal prices. The Chief Secretary suggested
that the Treasury would be looking for parity with the prices
seen in 2019 or 2021, rather than the “artificially” low prices
of 2020. Can the Minister confirm exactly what figure the
Treasury has in mind as a trigger for phasing out the levy? Do
the Government believe there is any realistic prospect of those
prices being seen before the 2025 sunset, or is the expectation
that inflated energy bills are here to stay, at least into the
medium term?
The Treasury’s announcement of a windfall tax came alongside the
scrapping of its proposals for a “buy now, pay later” loan to
households and the introduction of a £400 discount instead. It
soon emerged that owners of more than one property will be
entitled to multiple reductions. That includes the then
Chancellor, Mr Sunak, who said he would donate the extra money to
charity. He urged other wealthy people to do the same.
Instead of leaving it to individuals’ discretion, why has the
Treasury not performed another U-turn and closed that loophole in
this Bill? Do Ministers really believe that it is fair for those
who can afford multiple properties to receive more support? The
cumulative cost of this decision is likely to be in the region of
£200 million. Would that money not have been better spent
providing further support for the least well off households
beyond that already announced? We are, after all, expecting
another significant hike in energy bills from October. That is
about real people; it will place household budgets under further
pressures at exactly the point at which temperatures start
dropping and people fire up their heating.
There are several other issues with the detail of these
proposals. This calls into question the Government’s line that
their delay in adopting this levy was so that they could work
through its practical implications. The decision to include
investment relief was not an inherently bad judgement. While we
believe that the Government has massively overstated the
investment implications of a windfall tax, it does make sense to
carry out such an assessment. However, the way that the
investment-related tax reliefs have been drawn up is problematic.
The super-deduction style of relief will see an astonishing 91p
returned to oil and gas producers for every pound that they
invest. Much of the revenue raised by the levy will therefore go
straight back into oil and gas producers’ pockets, rather than
serving the stated purpose of helping consumers with their higher
energy bills.
Those tax reliefs mean that, from next April, fossil fuel
investment will be subsidised in the tax system at a rate of 20
times the investment available for renewable energy schemes. Much
of this investment was going to happen anyway. These schemes have
been in the pipeline for years and many firms had already scaled
up their ambitions when wholesale prices started to rise and
profits grew. This means that the investment tax relief is
unlikely to produce any meaningful benefit in terms of future
energy supply or energy security. There are also fears that funds
could be used for exploratory fracking.
Some analysts believe that as much as £4 billion may be lost to
subsidised investment that is happening anyway. Again, does the
Minister not think that this could be better spent elsewhere?
That £4 billion could provide generous further support for
consumers, begin reversing the Government’s neglect of energy
storage, or boost the UK’s green energy capabilities. Are these
not worthy causes? Doubling our onshore wind capacity by 2030
would power an extra 10 million homes. Insulating 19 million
homes over the next decade would slash household bills, while
drastically improving the quality of the nation’s housing stock.
Further investment in offshore wind, solar power, tidal power and
hydrogen could improve our energy supply and help in our fight
against climate change. These are the Labour Party’s priorities.
They should be the Government’s priorities too.
Instead of helping people through the cost of living crisis, the
Treasury has designed a windfall tax which hands money back to
the oil and gas giants, incentivising further exploitation of
fossil fuels. The British public will be grateful for the limited
help that they are receiving with their bills, but they will also
see through the Government’s claim that they are on their side.
It took too long for the Treasury to act, and there is still much
work to be done in the UK if it is to weather this cost of living
storm.
8.54pm
(Con)
I thank all noble Lords for their contributions to this debate.
In closing, I will focus on responding as far as possible to the
many and varied points raised.
As I said at the beginning, the global context of high oil and
gas prices has driven extraordinary profits for UK oil and gas
producers. It is both fiscally prudent and morally right
therefore that, through the Bill, we introduce a temporary and
targeted levy on these extraordinary profits, which will help
fund more cost of living support. At the same time, companies
must have ample incentives to continue to invest and the Bill has
been tailor-made to account for this. The new 80% investment
allowance will provide them with an additional, immediate
incentive to invest. This means that, overall, businesses will
get a 91p tax saving for every £1 invested.
Turning to the points raised in today’s debate, the noble Lord,
, asked about revenue that could
have been raised had the levy been in place between January and
May this year, and the noble Baronesses, Lady Kramer and Lady
Bennett, made similar points. It is not standard for the
Government to publish assessments of the fiscal and economic
impacts of measures that are not being introduced and it is not
clear that doing so in this case would be a beneficial use of
public resources. I would also add that since the beginning of
the year, three significant things have changed. The situation in
Ukraine altered considerably, inflation is considerably higher
than previously expected and the Government had concrete
information on the indicative levels of the autumn and winter
energy price cap, allowing us to design the levy and the related
cost of living support to meet the scale of the challenge we
faced.
As for whether an earlier commencement date for the levy was an
option, as noble Lords would no doubt expect, the Government
carefully considered several options. Indeed, following thought
and with time to consider, the levy has a more appropriate tax
base. The result is that it is not depressed by historical losses
and has an investment incentive that is not only more generous
but more effectively targeted at new investment. The Government
are also very careful when it comes to the retrospective
application of taxes. Although this tax will apply from 26
May—the date it was announced—there needs to be careful
consideration whenever the question of retrospection is raised,
particularly in relation to tax.
The noble Lord, , also asked about the
Government’s plan to phase out the energy profits levy if oil and
gas prices return in future years to historically more normal
levels. As the former Chancellor told the Treasury Select
Committee, the Government are discussing that with industry. The
former Chancellor also mentioned the Brent crude price over the
last five or 10 years, which is along the lines of $60 or $70 a
barrel. Similarly, companies have communicated to their
shareholders what they would consider normal oil prices; they
tend to use numbers in the range of $60 or $70, so that gives a
sense. The situation is complicated because prices have changed
at different rates, with gas, for example, reaching a peak in
March. However, as the noble Lord mentioned and other noble Lords
noted, there is a sunset clause of just over three years in the
legislation as a backstop. If prices come back to the range that
the former Chancellor discussed, one might expect the levy to
fall away sooner.
The noble Lord, , also mentioned that fossil
fuel investment will be subsidised in the tax system at a rate of
20 times the incentives available to renewable energy schemes.
Other noble Lords expressed concern around the investment
incentives in the Bill and whether these challenge our commitment
to net zero. Having an element of independence of oil and gas in
our energy system is important, and sourcing gas locally, through
the North Sea, makes us less dependent on imports. As set out in
the Government’s energy security strategy, the North Sea will
still be a foundation of our energy security, so it is right that
we continue to encourage investment in oil and gas. Our oil and
gas have lower emissions intensity compared to imported liquid
natural gas.
As I noted in my opening speech, in meeting our net-zero target
by 2050 we might still use a quarter of the gas that we use now,
so to reduce our reliance on imported fossil fuels we must fully
utilise our great North Sea reserve. However, that does not in
any way contradict our commitment to our net-zero targets. I take
issue with the noble Baroness, Lady Bennett, claiming that this
Government are in any way climate change denying. The UK has
decarbonised its economy further and faster than any other
G7—
(GP)
Just to clarify, I was referring to the Scott Morrison Government
of Australia when I said “climate change denying”.
(Con)
I believe she was comparing that Government to this one. This
Government have legislated for our net-zero targets—the first
major country to do so. We have decarbonised further and faster
than our G7 counterparts, and we have shown global leadership on
climate change and wider nature and biodiversity through our
chair of the G7 and COP 26. I know that noble Lords will continue
to push the Government to do better, go further and do more. That
is absolutely right and appropriate. The noble Baroness believes
in effective campaigning; I am not sure that an effective way to
campaign is not to recognise some of the progress made on the
journey.
The noble Lord, , said that investment will be
subsidised in the tax system at a rate of 20 times the incentives
available to renewable energy schemes. We do not recognise these
figures. Oil and gas companies within the ring-fence regime are
already paying tax on their profits at more than three times the
rate of other companies, so any tax relief is reducing a higher
tax bill. Although oil and gas companies save an additional 45p
in tax for every £1 they invest—91p in total from the levy—they
will pay tax at 65% of remaining profits. In contrast, outside
the oil and gas ring-fence regime, profits on companies such as
those in the renewables sector are taxed at 19%. So if a company
made £100 in profit it would pay £65 in tax in the oil and gas
regime but only £19 if it were outside the regime. If it then
reinvested £25 of that profit, an oil and gas company would still
pay more than twice the tax of a normal company—just over £42
compared with just under £13 for a company outside the
regime.
The noble Lords, and , expressed concern that a
large proportion of the estimated £5 billion of revenue raised in
the first 12 months of the levy being in place would be lost to
the investment allowance. I reassure noble Lords that the £5
billion estimate is net of the effect of the investment
allowance.
(Lab)
Will the noble Baroness tell us the cost of giving this 80%
investment allowance? She said that the £5 billion is net; what
would it have been without that, so that we know what the cost
is?
(Con)
I will come on to that in just a minute. Relatedly, I was just
about to answer the question about whether the money going into
the tax relief might be dead weight, in that the investment would
have happened anyway. The Government expect the combination of
the levy and the investment allowance to lead to an overall
increase in investment.
In relation to the noble Lord’s question, the OBR will take
account of this policy in its next forecast. I think we will see
some more detail from its assessment then. I hope that the net
additional investment that we expect from the design of the levy
provides some reassurance to my noble friend .
The legislation also includes an anti-avoidance provision to
prevent any recycling of existing assets getting the allowance. I
think that is about the targeting of the allowance and avoiding
dead-weight costs, rather than not being supportive of the
general concept of recycling assets.
(Lab)
I appreciate the point the noble Baroness made about recycling,
but there is nothing whatever in the Bill to prevent an oil and
gas company leasing a used asset, saying that it is a new
investment and claiming this allowance. That asset need not even
be owned by a company in the UK—the lessor could be somewhere
else in an offshore tax haven. It could be an affiliate of the
same company that pays, acquires a right and then uses it. The
Bill does not prevent that, does it?
(Con)
My Lords, the investment allowance has been carefully designed to
ensure that it incentivises investment but does not provide
relief for investment that would have taken place otherwise.
I will pick up on a couple of further points from the noble Lord,
, who had a few questions. To
clarify, the allowance does apply to new as well as existing
fields. It will not apply to carbon capture, usage and storage,
as it applies only to upstream activities, and carbon capture,
usage and storage is not an upstream activity. However, it would
apply to the decarbonisation of those upstream activities. I hope
that makes sense.
On energy storage, the Government published an energy security
strategy in April to increase domestic energy production and
accelerate the move away from gas towards low-carbon energies
such as nuclear, renewables and hydrogen. It builds on delivery
over the past decade, including giving the go-ahead to the first
nuclear power plant in a generation and a fivefold increase in
renewables. The Government will ensure a more flexible, efficient
system for both generators and users by encouraging all forms of
flexibility, with sufficient large-scale, long-duration
electricity storage, to balance the overall system by developing
an appropriate policy to enable investment by 2024.
The noble Lord, , asked about the £400 energy
discount and whether that may apply to second homes. The
Government’s intention is for the Energy Bills Support Scheme to
reach as many households as possible from October, while
minimising the administrative complexity of the scheme. We
consulted on the basis of delivering the £400 via domestic
electricity meter points. While he is right that some households
have second homes or multiple meter points, it will be important
to balance this against the timely and efficient delivery of the
scheme. I know noble Lords have expressed concern about the
targeting of the support that the Government will provide. I just
say that, in contrast to calls from other Benches—for example,
around a different route, which could be to reduce VAT—the
flat-rate payment provides a better targeted level of support to
those households that are most vulnerable. I think that is
something that we should support.
The noble Baroness, Lady Kramer, asked for reassurance that the
proceeds of the levy will go towards support with the rising
costs of living. As her noble friend said, the support announced
this year is worth £37 billion. Our estimate for the first year
of the levy is around £5 billion. While there is not a direct
ring-fence, it was announced at the same time as the additional
measures in May, which were about £12 billion of that £37
billion. The extra support that the Government are giving people
actually outweighs the revenue being raised from this levy. The
distributional analysis published alongside the May package shows
that it was highly progressive, and around three-quarters of
total support will go to vulnerable households. As noble Lords
will also know, we made it clear at that point that next April’s
uprating of benefits will use the normal September CPI—as we
expect that level of inflation to be higher than it will be the
following April—to account for ongoing high energy costs for
those households on the lowest incomes.
The noble Baroness, Lady Kramer, the noble Lords, and , and others asked about
energy efficiency. I talked about the £37 billion of cost of
living support, and I reassure noble Lords that the Government
are spending £6.7 billion in this Parliament to improve energy
efficiency and decarbonise heat in buildings. Over the next three
years, the Government are investing a further £1.8 billion on
low-income household energy efficiency, on top of the £1.2
billion spent since 2020. This will improve around 500,000 homes,
saving households on average £270 a year on their energy bills
long term, at current energy prices.
Some £471 million has been spent to date on the social housing
decarbonisation fund and sustainable warmth programme, estimated
to save households an average of £350 to £450 a year on their
energy bills. We are also consulting on expanding the energy
company obligation to £1 billion per year for improvements to
fuel-poor households. The Government agree with noble Lords about
the importance of improving energy efficiency, as well as
providing immediate support to households with the cost of
living.
I cannot answer the question from the noble Lord, , on the coal mine in Cumbria,
or all the questions from the noble Lord, , but maybe I will write to them
both and copy in all noble Lords so that they get satisfaction on
those points.
(LD)
I was slightly mischievous in asking the question, because
clearly the Minister will not be able to write and give me the
answer, although I would like her to. The Government have clearly
put off this decision yet again, and I just think it would be a
really good sign if they made up their mind and did the right
thing. Perhaps they could make that decision, at least before we
have regime change.
(Con)
My Lords, if the noble Lord is happy to consider that message
received, maybe I will direct my letter just to the questions
from the noble Lord, , which I may be able to answer
with more success.
I have a final point, which is quite crucial to why we are all
here today, in answer to the noble Baroness, Lady Kramer, who
asked whether we will implement the levy we are legislating for.
I assure all noble Lords that we will. We expect Royal Assent to
be quite swift after we finish with the Bill this evening, and
the levy will come into effect not just from that point but
retrospectively from 26 May.
The noble Baroness noted the separate issue of the electricity
generation sector. The Government continue our work to explore
whether certain parts of the energy generation sector are
receiving extraordinary profits, partly due to record gas prices.
We are consulting with that sector both to drive forward the
energy market reforms and to evaluate the scale of any potential
extraordinary profits, and we are considering the appropriate
steps to take. That work is proceeding separately and more
slowly, but this levy—once noble Lords have agreed to it this
evening—will absolutely go ahead.
Bill read a second time. Committee negatived. Standing Order 44
having been dispensed with, the Bill was read a third time and
passed.
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